Bank of England Governor Warns Trump Tariffs Risk Global Economic Stability

Andrew Bailey, the governor of the Bank of England, has strongly criticized the repeated threats of tariff increases by US President Donald Trump, describing them as a significant risk to global economic stability. Speaking at the annual Mansion House dinner in London, Bailey condemned Trump’s proposed 30% tariffs on imports from the EU and Mexico, in addition to existing levies on Chinese goods, labeling the approach as "economic sabotage." He argued that such measures would backfire, exacerbating inflation, which he identified as the genuine threat to economic stability.

Bailey emphasized that these tariffs pose a danger to the global economy, potentially triggering a cycle of retaliation and protectionism. He warned that higher tariffs could slow down trade, leading to increased prices for everyday goods and a reduction in global economic activity. Bailey also cautioned that such measures would ultimately harm the households they are intended to support, as they could lead to a decrease in global economic activity and an increase in prices for ordinary goods.

Bailey urged global leaders to prioritize collaboration over conflict, particularly between the US and China, to address outstanding trade and capital-flow imbalances. He noted that the two countries account for nearly 40% of the world’s current account imbalances, with the US running a large trade deficit and China having a significant surplus due to elevated savings and low domestic consumption. Bailey argued that these positions are unsustainable and that economic divisions reinforce political hostility between the two sides.

Instead of resorting to tariffs, Bailey advocated for world leaders to work together and reform multilateral institutions, including the International Monetary Fund (IMF) and the World Trade Organization (WTO). He emphasized the importance of all parties agreeing upon the rules of the process, cautioning that allowing one dominant player to dictate the rules is not a formula for lasting stability. Bailey also urged the US to explain how it reconciles its increasing domestic fiscal deficit with its condemnation of its trade imbalance with the rest of the world, and called on China to address its low household consumption and excessive export dependence.

In addition to his remarks on global trade, Bailey also raised concerns about the rapid expansion of digital assets, particularly stablecoins, and the potential for a central bank digital currency (CBDC) in Britain. He warned that the widespread use of digital currencies could intensify the severity of bank runs, as a rush by depositors to withdraw funds could lead to a rapid loss of liquidity and render many of the Bank’s assets effectively worthless. Bailey also expressed reservations over the proposed digital pound under consideration by the Bank of England and the HM Treasury, stating that the case for innovation "has not yet been made."